The 27th Conference of the Parties (COP27) to the UN Framework Convention on Climate Change (UNFCCC) is being held in Sharm El-Sheikh, Egypt, on 6-18 November 2022. ISO and its members join ranks with world change makers to showcase how International Standards help transform climate commitments into action. Our coverage of COP27 provides an overview and greater insights of ISO’s work in this area, from in-depth features to thought-provoking think pieces.
A huge – perhaps huge doesn’t do the amount justice – injection of finance is required to effectively tackle climate change. We know what needs to be done, we have some of the technology to facilitate wholesale change, and we now need to finance the shift to a sustainable-based economy. Two newly released ISO standards are supporting these attempts, helping to create a unified framework and, in doing so, accelerate progress towards greening business models and the wider economy.
During the 2021 UN Climate Change Conference (COP26), the US envoy, John Kerry, described the climate crisis as a problem of “math and physics” not politics. In part, this was an attempt to take the heat out of a number of difficult bi- and multi-lateral relationships, but he was also underlining the vital role that finance has in both implementing climate action and scaling up ambition.
Figuring out financing
Finance is the cornerstone of climate change developments and while we tend to focus on sustainable financing, as COP27’s Finance Day highlights, there are many other economic issues to deal with. Among these are reducing the cost of green borrowing, reconceptualizing climate-related debt for poorer countries, calculating reparations for countries suffering the impacts of climate change, and ensuring the climate transition is just and equitable.
Since last year’s summit, parts of the world have suffered the devastating effects of climate change, particularly flooding, which reached catastrophic levels in Pakistan, and badly affected Australia, China, parts of South-East Asia, Nigeria and Venezuela. As a result, the issue of loss and damage is expected to be firmly on the COP27 agenda, particularly the consistent “short changing” by developed countries towards least-developed countries (LDCs). At COP15, developed countries pledged to provide USD 100 billion annually to LDCs to help tackle climate change, but have so far failed to deliver on this.
A huge injection of finance is required to effectively tackle climate change.
Change is required, and quickly. Alignment is vital, on the back of which action can accelerate towards targets. How we finance the green agenda needs major attention. UN Special Envoy on Climate Action and Finance, Mark Carney, highlighted this issue while speaking at Davos in May, with “saying you’re going to get there in 2050 doesn’t do anybody any good”. Instead, he argued, the focus needs to be on what action is taken “over the course of the next several years for alignment”.
This alludes to a central problem with sustainable financing. Not only is there not enough of it – estimates suggest USD 50 trillion by 2050 is required, a figure that Carney doubles – but there is a disorganized muddle of schemes and approaches, which is holding back progress and resulting in current climate-related spending registering a paltry 0.7 % of global GDP.
The shift to green
Sustainable financing covers a range of activities from investing in companies that demonstrate positive social values to funnelling money into green technology. As well as being good for the planet and society, evidence is mounting that sustainable businesses offer higher returns for investors. Exchanges, lenders and investors increasingly show a preference for green companies, as do consumers and employees, who are more likely to stay loyal to a brand or business that is working to become more sustainable or produces environmentally friendly goods.
Practically, the quicker we shift to a sustainable economic model, the less it ultimately costs. The UN Intergovernmental Panel on Climate Change (IPCC) suggests that between USD 1.6 trillion and USD 3.8 trillion is needed annually to meet the 1.5 °C target, making our current spend of just over USD 600 billion look woeful. If we don’t increase the amount, the figure rises to USD 5 trillion annually by 2030.
Technology, incentives and money are the ingredients that have worked to date, as the growth of renewable energy highlights. As the climate crisis deepens, however, incentives are more likely to be replaced with legislation and regulation, as policy makers add a mandatory element to accelerate efforts.
Currently, as with many other areas of the climate crisis situation, multiple players have created different principles, protocols, targets, regulations and guides. To thrive, however, in the changing landscape, organizations need to adapt – and, importantly, be given the right support, tools and requisite information to do so.
Finance is the cornerstone of climate change developments.
The transformative potential of standards
Understanding this, ISO has conducted a thorough review of the sustainable finance landscape. Out of its continuing work in this area has emerged a series of standards, which are designed to underpin and catalyse green and sustainable finance by providing structure, transparency and credibility for investments in environmental projects and programmes.
Among its most recent standards for sustainable finance are the freshly published ISO 32210 and ISO 14093, whose publication is imminent. The former offers guidance to a whole spectrum of organizations in the financial sector on the application of overarching sustainability principles, practices and terminology. Providing a flexible framework, ISO 32210 can be adapted to each organization’s circumstances, situation and bespoke activities; so it still allows that space to comply with existing financial-based disclosures and regulations. The goal of the standard is to help organizations transition towards their sustainability objectives, with a focus on climate risk and how they can factor in physical or transition climate risk into their activities, and then mitigate those risks.
ISO 14093, for its part, looks at mechanisms for financing the adaptation to climate change. Placing local and community adaptation needs at the centre of climate action, it creates the linkages and frameworks for planning, financing, implementing and monitoring of nationally determined contributions and national adaptation plans at the subnational and community levels. The standard enhances capacities to respond to climate change at the local level. It integrates climate change adaptation into local governments’ planning and budgeting systems in a participatory and gender-sensitive manner, and increases the amount of finance available to local governments for climate change adaptation.
ISO’s new standards are designed to help counter “greenwashing”, eliminate wider confusion and boost confidence in the market. They have been developed to add definition, classification, transparency and integrity as well as to support attempts to help measure the impact of sustainable finance.
Carney argues that we need change on the scale that was witnessed during the industrial revolution, but at the speed of the digital transformation. This is no small task. To effect system-wide changes, standards will play a vital role. They feed into policy and, more broadly, offer a ready-made, expert, transparent framework to support those businesses looking to promote change.